Japanese Candlestick Charting
Use Japanese Forex Candlesticks Charts To Identify Market Turning Points
Spot Major Market Reversals In Front Of Your Eyes With Candlestick Charting!
Reading candlestick charts can be a very powerful way to look at the market. By reading the candles that form on charts, you can anticipate which way the market is most likely going to move.
As traders buy and sell in the market, their trading behavior leaves an imprint on the charts in the form of candles. And candles are a direct representation of actual prices of the stock, currency pair or commodity. In trading, there is nothing more important than price. That’s such an important statement that I’ll repeat it again.
In trading, there is nothing more important than price.
All other price-based technical indicators are derived from price. That means price has to move FIRST before the indicators follow. Indicators follow price, price doesn’t follow indicators!
Some traders get so caught up in technical analysis and indicators that they forget this basic fact. All price-based indicators are based on formulas that manipulate price action in some way or other to create squiggly lines on the chart.
So while you study the use of technical indicators, remember that price is most important!
For more information, check out the Candlestick Chart Analysis section at the bottom of this page.
Japanese Candlestick Charting
There are only two groups of people in the market that cause the market to move. Buyers and Sellers. Although most types of charts give you the open, high, low and close, by looking at candlestick charts, we can more easily tell which group is in control of the market. How?
The reason why this type of chart is called a candle is due to the “wicks” that appear above and below the candle body.
- The top of the candle is the high of the time period.
- The low of the candle is the low of the time period.
- The open and close form the body of the candle itself (shown by the green or red body)
When prices close near the top we can say that the buyers are in control. This happens when buyers are more aggressive than sellers, and are willing to pay increasing prices to get into the market. The sellers are only willing to sell at higher prices. This is what causes the price to close near the top.
When prices close near the bottom we can say that the sellers are in control. This happens when sellers are more aggressive than buyers, and are willing to sell at any price. Buyers were only willing to buy at lower prices. This is what causes the price to close near the bottom.
From where prices close within the high and low of the candlestick, we can tell who is more dominant in the market place, and who is winning the war between the buyers and the sellers. This is the most important function that the candlestick serves.
Candlestick Chart Patterns
When I first started learning about candlesticks, there were so many names for so many patterns that it was difficult to make sense of them. The most important thing about candlestick charts aren’t the names, but understanding why they form the patterns they form.
Markets tend to move from low volatility periods to high volatility periods before moving back to low volatility again. When you understand this, you can tell when a market is in a low volatility period, the length of the candle body is shorter. When the candle body is longer, the market is in a high volatility period.
Prices tend to explode out of low volatility periods, which makes getting in during low volatility periods a great way of making explosive profits!
The key thing to remember about candlestick patterns is that when prices have been moving higher, and you start seeing sellers gaining control you want to be wary that the trend may be changing from up to down. The same thing applies when prices have been moving down, and you start to see buyers come into the market and start taking control.
Reading Candlestick Charts - Pause and Potential Change In Trend with the Doji Candlestick
When buyers and sellers are more or less equal in strength, which usually forms either a spinning top or doji, it signals that the trend is:
- Pausing and
- Might also be starting to change.
When you start seeing such patterns at or near support or resistance levels, you can expect that the trend might be changing soon!
Reading Candlestick Charts - Price Rejection with Hammers and Inverted Hammers
When prices are rejected from support or resistance levels, you can sometimes see hammers or inverted hammers form. This tells you that when prices moved in one direction, the opposite party came in and pushed prices back.
When you see such patterns form at support or resistance levels, it tells us that buyers or sellers are stepping in to take control of the market. This means that you can also expect that the trend could be changing soon!
Some Examples of Candlestick Patterns
In the following chart, you see prices hitting into resistance. Price is first rejected (long wick), then an inverted hammer forms, before prices start dropping all the way in a huge down trend!
You can also see periods of high volatility (shown by longer candle bodies, sometimes also known as wide range candles) followed by periods of low volatility (shown by shorter candle bodies, sometimes also known as narrow range candles) in the following chart.
When you can get into a trade during a low volatility period just as the trend is changing, you can expect to get explosive profits! How nice is that?
Candlestick Chart Analysis Trading Resources
For further lessons in trading with candlesticks, these are some of the best resources available:
- Forex Candlesticks Made Easy (By Chris Lee)
Check out the Official Forex Candlesticks Made Easy Course >>
Spot Major Market Reversals In Front Of Your Eyes With Candlestick Charting!